[Reexamining Lee Kun-hee's Leadership (Part 1)] The 1993 'New Management' Declaration That Marked a Milestone in Samsung's History

Chairman Lee Kun-hee Visits Electronics Store in LA, Finds Samsung Products Pushed to the Corner Amid Competitors like GE, Philips, Sony... "Samsung Name Should Be Returned," He Fumes
Four Months Later, Declares 'New Management' in Germany, Orders Shift from Quantity to Quality Management
Emphasizes Harm Using Phrase "Defects Are Cancer"
Abolishes Seniority and Discriminatory Clauses... Also Pushes for Personnel Reform

[Asia Economy Reporter Kim Hyewon] The year 1993 marked a turning point in Samsung's history. It is no exaggeration to say that Samsung is divided into before and after June 7, 1993. This is due to the legendary declaration of "New Management" by Samsung Chairman Lee Kun-hee, who famously said, "Change everything except your wife and children." This happened just five years after he took office as chairman following the death of founder Lee Byung-chul.

With Chairman Lee's passing on the 25th after a long battle with illness, his greatest achievement?the New Management doctrine?is once again shining brightly. Interest is growing in the behind-the-scenes story of the New Management declaration that awakened a dormant Samsung, as well as the fact that this management strategy from 27 years ago still aligns with today's corporate environment in many ways.

The beginning of the New Management was traced back to February of that year. Chairman Lee visited an electronics store in Los Angeles (LA) with key executives from Samsung's electronics affiliates. The purpose was to see firsthand how Samsung products, which they proudly believed were good, were being treated in the world's largest market, the United States. Among the dazzling product displays of advanced electronics companies like GE, Philips, Sony, and Toshiba, Samsung products were seen covered in dust in a corner.

He immediately moved to a conference room at the Century Plaza Hotel in LA and ordered the disassembly of 78 electronic products. This was to instill a sense of crisis by showing anger at Samsung products being treated as cheap. Chairman Lee lamented, "We should return the name Samsung. Why use the name Samsung when our products are shoved into a dusty corner? Among the products on the display shelves, some have broken lids or do not work. This is an act of deceiving shareholders, employees, the public, and the country."

On June 4 of that year, at the Okura Hotel in Tokyo, Chairman Lee sat down with Tamio Fukuda, a design advisor for Samsung Electronics whom he personally recruited from the Japanese company Kyocera. The meeting to uncover Samsung's problems continued until dawn, and Chairman Lee expressed his concerns about how to raise the level of design. Fukuda's pointed critique, "First-class products require not only design but also integration of product planning and production technology, but Samsung's product planning is weak. Even when development is done, it takes a long time, and the timing of launching products to the market is missed," was a painful truth.

Three days later, on June 7, at the Kempinski Hotel in Frankfurt, Germany, Chairman Lee gathered about 200 executives and overseas staff to hold a meeting to open a new Samsung. At this meeting, the New Management declaration that changed Samsung's history was born. It marked the start of Samsung's second founding.

Chairman Lee strongly urged all employees to share the urgent sense of crisis that Samsung would fall into third or fourth-rate status and possibly collapse if it remained as it was, and to choose the path of a major transformation. This was the moment when his famous quote was born: "In the era of globalization, if we do not change, we will forever remain second or second-and-a-half rate. Even if we do well now, we are only 1.5 rate. Let's change everything except our wives and children."

After the first mobile phone was released in 1994, the market turned its back due to quality issues. In response, Chairman Lee Kun-hee held a shocking "burning ceremony" in 1995 at the Gumi plant, gathering 150,000 defective wireless phones and setting them on fire. In 1995, at the Samsung Gumi plant stadium, 150,000 defective wireless phones, including Anycall models, were completely discarded. At the time, the burning of defective products was also called the "Anycall Burning Ceremony."

The core of Samsung's New Management was a shift from quantity (量) to quality (質)-oriented management. The introduction of the line stop system and the burning ceremony of defective wireless phones are representative examples. Samsung's journey toward becoming a top-tier company began with the eradication of defects. Chairman Lee emphasized the harm of defects, saying "defects are cancer," and stressed that defects could ruin the company. He even said it was acceptable to halt production at factories or lines if necessary to improve the quality of products, services, people, and management.

Regarding Samsung Electronics' status at the time, Chairman Lee criticized, "Samsung Electronics is an organization where even screws rolling around on the production floor are not picked up, an insensitive company with 30,000 making products and 6,000 fixing them, an inefficient and wasteful group," and insisted that "the basic awareness of quality among employees must change." The effect of the line stop system was significant. In electronics, the defect rate in 1993 decreased by 30% to 50% compared to the previous year.

A striking example of Samsung's determination to focus on quality was the burning ceremony of defective wireless phones in March 1995. Chairman Lee collected and burned 150,000 units worth about 15 billion won of defective products. As a drastic measure, Samsung unconditionally exchanged these for new products as an apology to customers.

The changes brought by New Management also took root in the organization by establishing a tradition of fair personnel practices free from nepotism, regionalism, or academic background bias, abolishing seniority and various discriminatory provisions, and settling merit-based personnel practices suited to the times. From the second half of 1993, Samsung drastically changed its recruitment methods for new employees, and in 1994, it implemented personnel reforms such as merit-based evaluations, simplification of personnel regulations, and the introduction of exchange work systems among affiliates. In 1995, Samsung even abolished academic restrictions in hiring, delivering a fresh shock. Starting with the recruitment of 500 female employees in the first year of the New Management declaration, large-scale hiring of women also began in earnest.